I did some investigation into the sound cutting out issue:
tail -f /var/log/pluto/59_Generic_Serial_Device.log | grep '^40\|^41'
shows this line in the log exactly when the sound cuts out:
40 11/25/08 20:36:25.694 Sending buffer to ttyS1 with size 6: <0x53 0x49 0x44 0x56 0x44 0xd (SIDVD\r)>. <0x42804950>
Basically, LinuxMCE sends 'SIDVD' (which is #165 select DVD input) to the receiver. The problem is that sending this command causes the receiver's audio to cut out (presumably while it manages switching inputs) for a few seconds. Incidentally, manually changing the input with the selector knob causes the audio to cut out for exactly the same amount of time.
As a simple workaround, I commented out the code in the #165 ruby rectangle:
#<$"SIDVD\r"$>
Doing this prevents LinuxMCE from ever sending the "select DVD input signal" 'SIDVD'. This works for me because I only use the "DVD" input on the receiver anyway. If you need LinuxMCE to switch between inputs, this workaround won't help.
Cheers,
Alex